Originally Posted by
Snoopy
Plugging in a representative yield of 7.5%, one that IMO represents an appropriate risk for the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation.
(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )
9.0c / (0.72 x 0.075) = $1.67
A reminder here that NTA was
($687.600m - $72.159m) / 577.468m = $1.07 cps
at the half year FY2020 balance date. This means my 'fair valuation' is at a good premium (+56%) to net tangible asset value.
This $1.67 valuation is measured at the average point in the business cycle. My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target share price range for HGH of $1.34 to $2.00. $1.90, where the share is trading today, looks a ten cents or so above fair value. My target accumulation price (10% below fair value) is now $1.50. And yes I could add the upcoming 4.5c interim dividend onto that fair value.